GCI Liberty, Inc. Series C GCI Group Common Stock When Issued

Thank you, Alison. And thank you all for joining us today.

I’m Pete Pounds, the company’s Chief Financial Officer; Ron Duncan, our President and CEO is joining us on the phone, and we have the usual supporting cast here in the room with me. We will all be available to participate in the question-and-answer session which will follow my initial comments.

This conference call is being recorded and will be available for playback. To access the call via net conferencing, log on to our website at www.gci.com and follow the instructions.

The webcast will be available for replay for the next two weeks. Some of the statements made by GCI in this presentation are forward-looking in nature.

Actual results may differ from those projected in forward-looking statements, due to a number of factors. Additional information concerning such factors can be found in GCI’s filings with the Securities and Exchange Commission.

We've been very busy since the last conference call so I want to take a few moments to review some of the significant changes since that call. First the FCC adopted the Alaska plan for high cost USF funding in the state of Alaska.

This plan provides funding to maintain and improve broadband communications in rural Alaska and were supported by 23 RECs in Alaska. The GCI specific aspect of the plan are as follows.

With respect to the $55 million of rural support payments that we receive on an annual basis, that will remain unchanged for the next 10 years subject to performance commitments and the review at five years. With respect to the $11 million per year urban support that will decline to $7 million in 2017, $4 million in 2018 and then be eliminated going forward.

This plan will reduce financial risk and improve services in rural Alaska. We've also been working hard at simplifying our billing systems in preparation for our billing conversion in 2018.

We've already eliminated 3 billing systems this year and are down to less than 1000 subscribers on the fourth and last one that will be eliminated this year. These eliminations will save us just over $5 million per year in payment to vendors.

As you might imagine there are significant further benefits to our customers and our internal operations from these eliminations. I'm proud of the work that our talented teams did to make this happen.

As I mentioned on the last call we're moving forward on a refinance of our senior credit facility, which currently has a remaining term of 18 months. The primary change in the facility is a new five year term.

We expect to have that wrapped up this month and with that have our next debt maturity pushed out to 2021. We had a nice quarter financially as well.

Our $7 million sequential EBITDA growth was driven by the following items. First we grew data revenues by $2 million, secondly we reduced our circuit cost that we pay to other telecom carriers by $1.5 million.

Additionally we improved our margins in our [timo] material space by $1 million. Finally there is a change in how we are calculating adjusted EBITDA both prospectively and retrospectively.

This year we've been including cash payments in excess of GAAP revenues from our roaming and backhaul contracts into EBITDA. We believe that this most closely matches the economics of the contracts and our senior credit facility that we're completing is in agreement with this approach as well.

However, recent SEC interpretations and comments have made clear that these type of adjustments are generally inappropriate. We have not had any recent discussions or correspondence with the SEC on this or other matters, but we will be complying with SEC interpretations and eliminating this adjustment.

You can access reconciliation of the comparable GAAP financial measures on our website and in our press release. Just to be clear, this does not affect actual cash flow or the leverage on our eminent senior credit facility.

With that extended preamble, I will now move on to our normal comments. We achieved revenue of 237 million for the quarter, up 3 million from the previous quarter on strengthen in our data products.

Year-over-year revenues were down 22 million as a result of our roaming and backhaul agreements. Recall that in previous years roaming seasonality significantly increased our second and third quarter results.

The new contracts remove most of our seasonality. Our third quarter adjusted EBITDA was $78 million, up $7 million sequentially.

The growth was driven by the data, revenue growth and COGS savings that I mentioned earlier. On a year-over-year basis EBITDA was down 18 million, again that’s driven by the reduction in our roaming and backhaul revenues.

Moving on to the wireless segment, the wireless segment posted revenues of $52 million for the quarter, representing a $2 million decline from the second quarter of 2016 and down 28 million from the third quarter of 2015. Adjusted EBITDA for the quarter was 32 million, down 1 million sequentially and 25 million year-over-year.

The decline is due to primarily to lower roaming and backhaul revenues. Moving on to the wireline segment, wireline segment revenues of 184 million for the quarter were up 4 million from the second quarter and up 6 million from a year ago.

Declines in voice, video were offset by gains in data revenues. Wireline adjusted EBITDA was 46 million in the quarter, which is up 7 million year-over-year and sequentially.

EBITDA benefited from the COGS reductions that I mentioned earlier and we also benefited from the gains in the data revenues. I’ll now turn to the specific customer groups within the wireline segment for more detail.

Consumer revenues of 88 million in the first quarter were up 4 million compared to the prior quarter and flat year-over-year. Our sequential growth was related to handsets.

The year-over-year change for the combination of growth and data ARPUs offset by declining voice and video subscribers. Our cable modem subscribers were up 2,700 subscribers over the third quarter of 2015 and were flat sequentially.

At the end of the quarter, we updated our cable modem plans by increasing the speeds for the same price. Our lowest cable modem speed in urban areas is now 50 megabits.

Our lowest speed matches our competitor's top end speed. In wireless, we were down 1,700 subscribers sequentially as we continue to transition of our acquired subscribers.

We now have fewer than 1,000 remaining subscribers to transition. GCI business, GCI business revenues of 97 million in the quarter were up 1 million sequentially and 6 million year-over-year.

Strong data growth was the reason. Other matters of interest, our capital expenditures for the quarter totaled 58 million bringing our total for the year to 142 million.

Stock buybacks, we bought back 1.8 million shares during the quarter at a cost of $27 million. Future buybacks are contingent on a number of factors including leverage, board approval and other opportunities in the market.

Liquidity - we ended the quarter with 93 million in cash on our balance sheet and 128 million in availability on our line of credit, with total current maturities of $13 million I'm satisfied with our liquidity. Leverage remains within our comfort zone with net leverage based on trailing two quarters annualized of 4.2 times.

As I mentioned we anticipate closing on a refinancing of our senior credit facility later this month. The terms of the new facility are similar to the current facility with an extended term that pushes out our earliest maturity to 2021.

Guidance and economic prospects, we had guided to adjusted EBITDA between 295 and 325 million including the $30 million adjustment. The implication would be 265 million to 295 million without the adjustment.

We are raising guidance to between 280 million and 295 million. Revenue - between 930 million and 980 million and capital expenditures of approximately 210 million.

In conclusion we will now be happy to answer any of your questions. Alison, I'll hand it over to you.

Good afternoon, or I guess good morning in Alaska. First question is update on the lower 48 number portability, you've said that's relatively important and you were looking to get that done around year end.

Barry, it's Greg Chapados, we will not get the number portability completed by year end, we have selected a vendor, this change is going to require a fair amount of work on our IT systems and so it will be, it'll happen next year. I don’t have specific timings for that right now.

And then also you guys gave a good deal of visibility in terms of shutting down that fourth billing system, could you remind us how many in total are you trying to shrink down, I know the goal is to get down to one when we go live in 2018. Where are we?

What inning are we in, in terms of billing system consolidation?

Yes Barry let me give you kind of an overview and I'll stick on the consumer side where we started the year with seven different billing systems and so I would say that we're materially complete with eliminating four of those before year-end here. Three of them actually shut down already.

That will leave with us with three as we enter 2017. One is a prepaid wireless system which will stick around here even post conversion in 2018, but the remaining two billing systems will convert over in 2018 leaving us with just two billing systems on the consumer side.

So really Phase 1 is eliminating the billing systems that will not be converted into the new system, Phase 2 is streamlining our plan structures, so we will be making sure that people around the plan that are going to be there going forward next year. So the people that have been working on the conversion getting off at the old billing systems, will be moving on to what we call rate plan simplification.

I think that's really going to be a big benefit for both our customers and our internal operations as we simplify the plans that we have out there.

Okay. And then shifting gears, so if I could ask about wireless fiber numbers, obviously you've called out the attrition you have had in converting the acquired ACS customers over to your base, fortunately that ends this year, so you get kind of more clean comps connect here.

I am wondering about the potential for growth once we get into 2017 without that distraction well out those losses and especially on the business side, where you guys are the only wireless carrier in the state that also can offer -- that as a fiber network you can offer enterprise communications and you're also the only fiber provider that also has a wireless network. And I think there has been good synergies from companies like AT&T and Verizon in cross selling businesses across wireline and wireless.

Yes Barry, we not giving any specific guidance on wireless sub-counts. I would agree with your general commentary that we are in real good position to cross sell and certainly with the commentary that we are experiencing headwinds as we convert customers off of the legacy systems there.

Okay, those are my questions, thank you very much.

My first question is just to follow on from the prior question, not specifically but I guess more generically given your assets and your comments earlier that your fastest broadband speeds are now on par with -- your slowest broadband speeds are now in par with your competitor's fastest speed. It is the go-to-market hitch that you're going to have at some point here in the near future that selling something over conversions model given your unique asset base and wireless assets at the same time, something that your competitors can't do?

Michael, again its Greg Chapados. I think it's absolutely the case that we want to maximize the use of the assets that we have invested in and what you call a conversion or ubiquitous connectivity, that’s something that we do want to move towards and provide a seamless solutions for our customers.

Okay. And I guess -- let me ask a different one, is there something technically that’s precluding you from marking plans along those lines now or is it just, you just haven't done that yet?

Well, I think that we have plans right now that certainly provide advantages to our customers that they are buying both wireless and wireline services from us. We're going to continue to go down that road of enhancing those kinds of plans, the answer would be yes.

Okay. And then I guess just two additional questions, bigger picture questions, one is the state of the economy in Alaska at this point and I guess more specifically the current state of the government there as far as their budgetary plans.

I know you put out the 8-K a few months back that if they didn't get their act together you were probably going to be bringing down your 2017 CapEx plans, can you just update us on where things stand there?

So first on the state of the economy, the latest numbers that I saw I think they just came up the press day or two ago, it was that state unemployment is up a bit, I think it's about 0.6% from a year ago, that's to the low 6% range statewide and that's lower in the urban areas here. So it's a bit above national levels but not yet meaningfully elevated.

So there's a bit of a slowdown at this point. As to the budget there it's impossible to have a change before the election.

The election happens up here next week and your guess is as good as ours, what happens after the election...

This is Tina Pidgeon, I'll just add, the governor took some steps at the end of the last legislative session which I think helps provide some run way for the current budget reserves that the state has and so it won't be until we get into this next legislative session starting in January, which will have some changes. Changed faces, don’t know the extent to which that will be yet, but that will affect the dynamics going into the legislative session which is a part year session that's supposed to be 90 days but can be extended.

So really we'll have better visibility into what the path is once we get through or in the midst of that legislative session next year.

Okay, and I guess just finally any comments about Verizon, anything notable in terms of their changes at the retail level, thank you.

Nothing of note there Michael.

Alright, great, thank you.

Hi, thanks very much for taking the questions, I think this is, it's similar to what I asked last quarter as well. But the cash balance now after you got the tower sale proceeds is higher than we typically seen you carry, so just wondering about use of proceeds and is this something that is part of the credit facility financing or re-financing that you're working on that we should expect some debt pay down or what is this cash earmarked for?

Yes, so we announced last quarter that we were going to be spending about $20 million on a unique fiber asset that goes to the Kenai Peninsula in Kodiak Island and so we expect to close on that here in the fourth quarter of the year. That's going to take a little bit of that, secondly as we redo the senior credit facility here we are moving to have some of the term loan A, turned into revolver and that will basically allow us to effectively pay down some of the term loan A, while keeping that liquidity in place.

So that's the two primary uses of the cash there Ana.

Okay, great. And then just on the change in the EBITDA as you highlighted in the press release, it does optically make the leverage look higher, so I mean does that make you rethink leverage targets in all or are you going to be continuing to direct us to this kind of adjusted EBITDA leverage metric that's being used in the credit facility?

Yes, we are going to be using, what we believe is the best economic measure and it's the one that, that's in the senior credit facility here going forward and so adjusted EBITDA will be presented under the SEC view of it that when we get down to liquidity and what we feel most comfortable that’s based on the cash flows of the company. And so we will be using the same measure that our banks use.

Okay. And then are you going to report the adjusted number going forward, I mean…

We will note the size of it Ana, so that you will be able to do that cross walk. It gets into -- if it's a pretty minor showing of it then we might be able to show us, but we are trying to walk the path here of being a good corporate citizen.

Okay. Thank you very much.

Hi Peter, I just want to ask an additional question on the EBITDA calculation change. If I eliminate the add-back for cash payments in access of gap this year looks like EBITDA comes down 30 million, if I am doing my model correctly, am I right to assume that five years down and after change model for that EBITDA is actually $30 million higher than what I originally forecasted?

So that gets into two separate questions, number one, how long is the contract, with the answer being that’s it's long term and two, what are the adjustments each year? And so in the early portion of the contract, it's an add-back this particular year happened to be $30 million and when we get to March we will disclose what next year's number is.

But then on the out years that would actually be a deduct from adjusted EBITDA to get to our actual cash flows.

All right, that’s helpful. And then I also just was hoping you could remind me, what is the business rationale again for the decline in the cash flows from the roaming contract as you go out -- further out in future years.

Yes, we were trying to make sure that we were competitive with the alternatives out there. And all of the telecom providers that come to Alaska need to make a build or buy decision.

And so we were trying to match the economics on that and it does take a while to build network up here and I think we gave or may. Obviously, what they view is an attractive option to buy.

Okay. And lastly if I could just ask one more, in August you talked about reduction in CapEx in 2017, I was wondering if there is -- if you could, if there's any more specific info you give us in terms of projects that you guys are thinking about cutting back or where that CapEx savings are going to come from?

And also if there is any OpEx savings that we can expect you guys kind of re-tranche following maybe the decline in the budget in Alaska?

Sure, the two primary areas where we'll be reducing capital expenditures next year is, number one on the fiber going to the North Slope where we're forward funding. It's a two year project but more than half of that is being spent this year, so year-over-year we should experience a decline and number two the spending on the Terra project will decline next year with some of the significant spending that we've had this year.

So those are kind of the two larger projects and then otherwise it's just smaller percentages of multiple areas of capital spend in the company, kind of some belt tightening there. When it comes to OpEx really the one that I would highlight would be the payments to our billing vendors that I've already noted before, but we'll be looking for ways to make sure that we continue to grow the EBITDA of the company in spite of revenue opportunities that aren't quite as robust as they historically have been and so it's that trade off where historically we've spent 20% of revenues on CapEx and experienced 10% a year revenue growth and both of those numbers are going to be clipped a little bit going forward here as we get through the budget issues.

Thank you Alison, and thank you all for taking the time to listen in and ask the questions. We look forward to talking with you here the first week or so of March next year, so long.